Social Concern

Investment criteria are thus used to assess the “quality of management” in terms of its financial expertise, and ultimately shape investment decision-making. However, there is an added dimension to the investment process. In the Association's view and from society's broader perspectives, there is a social concern that relates to the managements and activities of corporations. There are social criteria, first, as to how the managers of certain companies (whose bonds or stocks represent otherwise suitable investment possibilities) are accountable for fulfilling their political and social responsibilities. Second, there are social judgments as to what the managers are doing constructively within their corporate framework in considering the impact of their operations and products on the economy and the environment—specifically in meeting human needs and ameliorating many kinds of current social problems, such as pollution, poverty, discrimination, unsafe conditions, lack of health care opportunities and urban blight—and on balance furthering a democratic society.

The Association's social concern is consistent with its investment criteria, in the sense of what a company's management is accomplishing through its internal governance policies with its resources of land, labor, capital and its constituencies. In this case, the Association has a broader and deeper focus on people in their social, economic, and political roles as customers, employees, vendors, creditors, regulators and shareholders and stakeholders comprising society at large.

Certain companies may make distinct, substantial, and costly efforts to fulfill their proper responsibilities. These undertakings may well require a great deal more capital and management commitment than in the past, and, in turn, might penalize profits in the short run and lead to some reduction in investment value or diminution in the productivity of assets in the short run. The Association's investment philosophy accepts this situation within the above time limitations, provided that the primary investment criteria are fulfilled and that longer-range productivity is not jeopardized. The Association believes along with Peter Drucker [the eminent management thinker of the past century], that “Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity.”

More positively, if the primary investment criteria are satisfied, the investment philosophy favors investment in shares of companies that are clearly committing capital and management to worker well being and alleviating widespread social problems. Such socially responsible programs undertaken by corporations are viewed as comparable to long-term capital expenditures. The investment philosophy evaluates them in much the same way and expects real financial and social returns in the form of more prosperous markets and improved social and living conditions within a generally upgraded domestic economic, political, and social order.

It is possible, from an investment-risk point of view, that as the nation's social and political awareness grows, legislation at all levels of government may result in economic penalties and regulations to force companies to act upon their corporate responsibilities. Developments such as consumer boycotts, corporate sabotage (including theft) and shareholder lawsuits may well hinder irresponsible companies that are solely interested in maximizing their short-run profits. Such disruptions distract management and may well reduce profitability. In the short run, investment in these companies might carry undue risk for these reasons alone, and thus could turn out unprofitable.

On the other hand, companies that exhibit social awareness, good corporate governance and accountability will have these qualities reflected over the long term in their improved profitability, premium capitalization rates of their earning power and in their equity prices. The Trust and Development Board regularly reviews specific Association investment positions and investment management's rationale for these investments. The T&D Board encourages investment management to actively consult and utilize various research services about socially responsible investing. Management normally reviews a broad range of sources, data and screening criteria that concern socially responsible investing offered by, among others, the Calvert Group, KLD Research & Analytics, Institutional Shareholder Services [formerly known as Investors Responsibility Research Center], SRI World Group, The Domini 400 Social Index, Domini Social Investments, and Proxy Edge, and incorporates this information in its investment decisions.

In sum, if primary investment criteria are fulfilled, the T&D Board gives preference to those investment alternatives that reflect not only the Association's social and moral concerns but also contribute towards alleviating society's broader problems.